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Ten years on, the debt bubble is bigger than ever

Ten years after a financial crisis caused by too much debt, the world has an even higher debt load.

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US government debt is out of control

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Debt, debt and more debt, says Jack Hough in Barron's. In the fiscal year that ended in September 2017, the US government spent $655bn more than it gathered in revenues. A new fiscal year begins for the US government in October and its debt is ballooning. This year's deficit could amount to $1trn.

The public-debt mountain will swell from $15.7trn at the end of September, or 78% of gross domestic product (GDP), to $28.7trn in a decade, or 96% of GDP.

There is "no clear milestone" to mark the moment "a country loses control of its finances", says Hough. But debt should be contained at a manageable percentage of GDP, and "the opportunity for that is slipping". To hold the line at 78% of GDP over the next three decades would require finding immediate savings in the budget of $400bn over the coming year, rising gradually to $690bn by 2048. In contrast, last year the US spent $590bn on defence, and $610bn on all other discretionary items, such as health and transport.

The US public debt build-up is just one major element of a global problem: ten years after a financial crisis caused by too much debt, the world has an even higher debt load. The International Monetary Fund calculates that global borrowings (public and private) are worth 225% of GDP, up by 12% in the past ten years. China's credit bubble alone is responsible for 43% of the rise in worldwide borrowings since 2007.

The problem is we have already exhausted all the tools to fight the fall-out from a debt-bubble bursting, as Ambrose Evans-Pritchard points out in The Daily Telegraph. There is no more room for major fiscal stimuli on either side of the Atlantic, while we have already gone down the money-printing route. The big economies "are skating on dangerously thin ice".

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